OCBC analysts contend that Asian defence stocks remain at the outset of a larger structural upcycle as escalating geopolitical pressures and policy moves toward military self-reliance push defence spending higher across the region. The bank argues that this trend persists even after global defence equities have already registered substantial gains.
According to OCBC, Asia is poised to become a primary defence hub as national governments increase procurement activity and accelerate domestic manufacturing of defence-related equipment and systems. That repositioning, the analysts say, is likely to underpin further demand for regional suppliers and manufacturers.
Market performance to date shows meaningful appreciation but relative underperformance versus other regions. The Bloomberg Asia Pacific Aerospace & Defence Index has risen roughly 48% over the past five years. By comparison, the Dow Jones U.S. Defence Index increased about 106% over the same period, while the MSCI Europe Aerospace & Defence Index climbed roughly 243%.
OCBC points to that relative lag as evidence of potential additional re-rating ahead for Asian defence names. On valuation metrics, the bank notes the Asian gauge trades at 46.7 times forward 12-month earnings, which is only slightly above its 10-year historical average of 44.2 times. By contrast, the MSCI ACWI Aerospace & Defence Index is at 34.9 times forward earnings, about 1.3 standard deviations above its long-term average.
"Asian defence stocks may only be in the early phases of the upcycle," OCBC analysts wrote, highlighting the prospect that the region could benefit from a policy shift toward domestic sourcing as the United States presses allies to assume greater responsibility for their own defence capabilities.
The analysts cite rising defence budgets in the region as concrete evidence of that trend. Using International Institute for Strategic Studies data, OCBC noted that Asias defence spending increased 5.7% in real terms to $573 billion in 2025. Specific budget moves cited include China raising its 2026 defence budget by 7%, South Korea increasing spending 7.5% to 65.9 trillion won, and Japan seeking a record 9 trillion yen defence budget.
Beyond traditional weapons systems, OCBC recommends investors consider exposure to firms tied to drones, cybersecurity and materials, reflecting the widening scope of modern warfare into domains beyond classic platforms.
While the analysts highlight valuation and budget trends that support further upside, they also point investors to a broader set of industry segments within defence that could participate in the structural upcycle as procurement and local production expand across Asia.